Sustainable Stock Selectors: Liontrust Sustainable Investment

Written by Rebecca Jones on 23rd Jan 2019

Ever wondered what sustainable fund managers ACTUALLY invest in? As ever, Good With Money is here to answer!

Our brand new series, Sustainable Stock Selectors, gives you exclusive access to the inside track on leading investment managers’ portfolios, revealing the Good companies boosting returns for investors and contributing to a better world – as well as those that may have not quite lived up to their potential.

In our first installment we speak to Peter Michaelis, lead fund manager on the Liontrust Sustainable Investment team, about the stocks that are inspiring his team this quarter.


Solving the global plastics problem with Nylon 

Plastic pollution has quickly become a mainstream issue and action is needed from consumers, companies and governments: we need a global effort to eliminate single-use plastics and reduce use, and improve recovery of the rest.

At Liontrust, we are proud to invest in the drive for solutions and the opportunity is clear as companies start to make significant financial gains from the environmental and social impacts that come out of delivering this transition. Ultimately it is the development of closed-loop ‘circular economy’ models that we believe will be critical.

Only 14 per cent of plastic packaging is currently collected for recycling and just 5 per cent retained for subsequent use, for example, highlighting the potential for companies working to improve this.

The company’s Econyl technology recovers waste nylon and feeds it back into the production process

One area of opportunity is the development of ‘regenerated’ plastics, which comes under our Increasing waste treatment and recycling theme. These are made from recycled plastic waste, avoiding the creation of virgin material from oil-based petrochemicals and helping to close the loop.

One stock we recently added as part of this theme is Italian textile manufacturer Aquafil. The company’s main product is nylon, which is tough and durable, as well as being lightweight, quick-drying, shrink and fire resistant. As a crude oil derivative however, nylon has a number of sustainability challenges and Aquafil has worked hard to address this.

The company’s Econyl technology recovers waste nylon from used fishing nets, fabric scraps and carpets and feeds it back into the production process as a raw material. According to its tagline, there is “No waste. No new resources. Just endless possibilities.”



EU emissions trading boost hydropower player

Our thesis on this Austrian stock is based on a continued increase in the EU Emission Trading System carbon price: this had traded below €5 (£4.38) per tonne of CO2 for years but recently breached the €20 level for the first time since 2008 and we believe it can keep rising to €25-30 (and beyond), which in turn inflates the power price in Europe.

With its low-carbon electricity generation, Verbund is a beneficiary of decarbonising the grid

Verbund, as a hydro player with relatively low costs, is highly operationally leveraged to an increase in power prices and the resulting cashflows from selling its own product, which emits very little carbon, at a higher price. The purpose of the carbon price is to make the most carbon-intensive forms of electricity uneconomic and ultimately reduce Green House Gas emissions from electricity generation in Europe.

With its low-carbon electricity generation, Verbund is a beneficiary of decarbonising the grid. Despite strong performance from the stock, we believe the predicted appreciation in carbon prices is not currently priced in.

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